China's currency, the yuan, is likely to stay on the slow-appreciating track despite its recent sharp fall, a well-known Chinese economist said Wednesday.The yuan hit a new high last Thursday, but on Monday followed with its sharpest fall -- 203 basis points -- since a revaluation reform was launched in July last y...

2006-08-21

China's currency, the yuan, is likely to stay on the slow-appreciating track despite its recent sharp fall, a well-known Chinese economist said Wednesday.

The yuan hit a new high last Thursday, but on Monday followed with its sharpest fall -- 203 basis points -- since a revaluation reform was launched in July last year. The official exchange rate on Wednesday was 7.9827 per US dollar.

Zhang Liqun, a research fellow at the Development Research Center of the State Council, said, "Even if the yuan slips back temporarily, expectations about its overall rise will not be altered."

Appreciation pressures on the yuan stem from China's huge trade surplus -- which hit a record US$14.6 billion in July, a rise of 40.6 percent on the same month last year -- and skyrocketing foreign exchange reserves, he said in an interview with Xinhua.

His remarks were echoed by Ha Jiming, chief economist at the China International Finance Corporation Limited, who predicted the yuan would appreciate by 4 percent by the end of year, compared to its level prior to the revaluation.

US manufacturers argue the yuan is undervalued by as much as 40 percent, making Chinese goods cheaper in the United States and American products more expensive in China.

In July last year, the government allowed the yuan to appreciate by 2 percent against the US dollar and abandoned its peg to the dollar in favor of a restricted float against a group of foreign currencies.

The yuan has since risen by 3.6 percent against the US dollar.

It is allowed to move only within a 0.3 percent band against the greenback per day, and Ha said the government-set range is expected to widen to 1 percent by the end of the year.

The People's Bank of China, China's central bank, promised in a recent monetary report that "market forces would play a bigger role in determining the yuan's value, and that the currency would gradually be made more flexible."